Black-white unemployment gap at all-time low

Sunday

Jul 16, 2017 at 3:00 AM

Jared Bernstein | Special to the Daily News

The latest jobs report provides yet another data point that the U.S. job market is closing in on full employment. I don't think we're there yet, as the report revealed that wage growth is stubbornly stuck at about 2.5 percent. True full employment should yield more wage pressure than that, suggesting that workers' bargaining clout is still too weak.

But that said, the report showed one of the benefits of tight labor markets: The gap between white and black unemployment rates was the lowest on record, with data going back to the early 1970s. Moreover, there's an important new paper out from staff economists at the Federal Reserve that sheds light on this important result. The gap, unsurprisingly, is sensitive to full employment, as black workers are disproportionately helped by tight labor markets and lastingly hurt by weak ones. That realization yields strong policy implications.

The figure shows the unemployment gap in percentage points between blacks and whites. It ranges from a massive 12 points in the early 1980s (when black unemployment was 21 percent, compared with 9 percent for whites) to a low of about 3 points last month (7.1 percent for blacks, compared with 3.8 percent for whites). But the figure reveals two important truths. First, the gap is highly cyclical, meaning black unemployment is more "elastic" to labor market tightness than white rates.

Of course, racial gaps in jobs, incomes and wealth are born of many factors, not just macro ones. Education differences matter, and the Fed study looks into this. However, the study finds that education differences between blacks and whites explain only about 10 to 15 percent of the unemployment gap over the last few decades (for Hispanics, education is a bigger factor, largely because of the larger share of Hispanic immigrants without a high-school degree).

In fact, the share of the black-white unemployment gap left over after factoring in education, age, marital status and state of residence is about 75 percent.

Think about the politics of this finding. There are many progressive public policies that should be enacted to correct racial injustices, from higher minimum wages, direct job creation and criminal justice reforms. Especially these days, every one of these ideas would generate fierce partisan battles. But that's much less the case for full employment. In fact, whenever I'm on Capitol Hill these days, politicians from both sides of the aisle routinely ask me: "What can I do to create jobs in my district for those who've been left behind?"

Clearly, the Fed's monetary policy should support full employment. In this regard, it was comforting to hear Chair Janet L. Yellen suggest in hearings Wednesday that she's okay with low unemployment right now, given that inflationary pressures are nowhere to be seen. In fact, the persistently low correlation between inflation and unemployment in recent decades gives the Fed space to upweight the racial effects of its policy choices. Concretely, this means expanding their comfort level to include unemployment rates that are lower for longer.

Even at full employment, pockets of joblessness will persist. That suggests a role for direct job creation, where the government creates public employment and/or subsidizes private jobs, often with a training component for workers whose skill levels don't meet today's skill demands. If that sounds outside-the-box, I assure you we've done a lot of that in this country, and the results have often been positive.

My sense is that many observers of these trends in racial gaps have concluded that nothing works and that there is a large and growing class of workers beyond reach. These results show such defeatism is clearly wrong. People across the racial spectrum will and do respond to opportunity. We just have to make sure the opportunities are there for them.

Bernstein, a former chief economist to Vice President Biden, is a senior fellow at the Center on Budget and Policy Priorities.

Never miss a story

Choose the plan that's right for you.
Digital access or digital and print delivery.